NEW YORK (Reuters) – Continental Airlines Inc shares jumped more than 5 percent after an analyst said the airline could bid on United Airlines, spurred by news that United and US Airways are in merger talks.

Investors would “react favorably” to a United and Continental (CAL.N) pairing, Stifel Nicolaus analyst Hunter Keay said. He upgraded Continental to a “buy” from a “hold.”

Continental and United, a unit of UAL Corp (UAUA.O), are both part of the Star Alliance and discussed merging in 2008 before Continental ended the talks.

Last week, news emerged that US Airways (LCC.N)and United are in talks to create the No. 2 airline in the United States, which could leave Continental in a tough spot, analysts have said.

“We expect CAL to respond with a bid for UAUA in the near term, partly as a defensive maneuver to protect its immunized JV, but also because of synergy benefits from creating the world’s largest airline,” Keay wrote in a note on Monday.

Continental, the No. 4 U.S. airline, declined to comment, as did United. Keay said he had no knowledge of any merger negotiations or talk between Continental and United.

Continental’s strong presence in New York and the Pacific market could complement United’s routes, whereas US Airways “lacks the rich appeal of new markets,” said GimmeCredit analyst Vicki Bryan in a research note.

“A UAL/CAL combination could generate nearly $2 billion in revenue and cost savings, perhaps twice the benefits versus a UAL/US Airways merger,” Bryan said in a research note.

Continental shares rose 5.7 percent to $22.76, the largest jump since Feb. 9. The Arca Airline Index rose nearly 2 percent, while he broader S&P 500 was up slightly. (Reporting by Deepa Seetharaman; Editing by Robert MacMillan and Steve Orlofsky)

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